Wheaton Precious Metals Corp. (TSX: WPM) is one of the largest precious metals streaming companies across the globe and operates through projects like Vale's Salobo mine and silver streams on Glencore's Antamina mine and Goldcorp's Penasquito mine.

Key Updates:

• Acquisition Update: Recently, the company reported the acquisition of the Curipamba Project from Adventus Mining Corporation at a total upfront cash consideration of USD 175.5 million. This project is expected to deliver an average of 17,000 oz of gold and 551,000 oz of silver per year for the first five years of production.

• Strong profitability margins: The company commands a higher margin than the industry median, which is a key positive and illustrates improved operational efficiency. Notably, the company reported its gross margin and EBITDA margin at 56.3% and 71.9%, respectively, in Q3FY21, higher than the industry median of 50.2% and 41%, respectively. Additionally, the company’s net margin stood relatively higher at 50.2%, versus the industry median of 12.9%.

• Elevated commodity prices: International Gold price has remained elevated since October 2021 due to rising bond yield, combined with the weakness in the dollar index. Moreover, being a defensive asset class, gold is gaining traction due to the overvalued equity market. Recently, we have seen a growing interest in the Gold ETF segment, which indicates that investors are pouring their investments in the same. Hence, the continuation of the above trend is likely to boost the company’s future realization prices.

Risks:

The performance of the company is highly correlated to the international metal prices, and volatility in the same would lead to lower realization prices and subsequently dampen the company’s performance. 

Q3FY21 Financial Highlights: (Thousands in USD)

Q3FY21 Income Statement Highlights (Source: Company Reports)

• In Q3FY21, WPM posted its sales of USD 268.9 million, lower than USD 307.2 million in pcp. The decline was primarily due to lower gold sales due to lower gold ounce sold coupled with lower realization rate.
• Gross margin stood at USD 151.4 million, slide from USD 176.5 million in pcp, due to lower sales. This was partially offset by lower total cost of sales (USD 117.5 million v/s USD 130.7 million in pcp).

• The quarter was marked by lower general & administrative expenses (USD 13.5 million v/s USD 21.3 million in pcp) and a decline in other expenses (USD 1.1 million v/s USD 2.6 million in pcp).

• Net earnings stood at USD 134.9 million, as compared to USD 149.8 million in pcp.  
  

Valuation Methodology (Illustrative): Price to CF-based

Analysis by Kalkine Group

Stock Recommendation

The company reported a significantly lower cash conversion period of only 3.9 days in Q3FY21, as compared to the industry median of 55.6 days. A lower conversion period indicates strong operational efficiencies, as the company promptly converts its investments into cash flows. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Franco-Nevada Corp, Osisko Gold Royalties Ltd and Sandstorm Gold Ltd. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of WPM at the closing price of CAD 51.51 on February 01, 2022.

One-Year Technical Price Chart (as on February 01, 2022). Source: REFINITIV, Analysis by Kalkine Group

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